European weakness holds back Diageo

10th Feb 2011 07:04

Price rises and improved volumes in North America and continuing growth in emerging markets helped drinks giant Diageo lift revenues in the six months to December 31, but weakness in Europe resulted in profits missing expectations.The maker of Guinness and a host of spirits including Smirnoff vodka and Johnnie Walker whisky, saw pre-tax profits during the period rise to £1.61bn from £1.39bn over the same period the previous year. Earnings per share totalled 48.2p, against expectations that they would be slightly above 50p. Sales rose to £7.13bn from £6.92bn.Volumes in North America were up by 2%, while in the International division, which includes Africa, Latin American and the Caribbean, and the Asia Pacific division they were up 9% and 8% respectively. However, continuing worries over the eurozone crisis seem to be putting Europeans off their drink, with volumes in the continent down by 2%.Chief executive Paul Walsh pointed out that growth outside Europe was boosted by increased spending on marketing."35% of the increase was behind strategic brands in US spirits to build the brand equity as we move away from promotional support and over 60% of the increase was on our brands in the faster growing emerging markets," he said."Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010."European sales were held back by the so-called 'PIGS', the debt-laden peripheral eurozone economies. "The economic pressures in Greece, Iberia and to a lesser extent Ireland led to a 13% net sales decline across these markets," Diageo said.Sales were strong in eastern Europe and Russia and were up by 1% in Britain.In Africa, beer sales performed well in Nigeria and Cameroon. Scotch was popular in South Africa, Latin America and the Caribbean. In Asia, the emerging markets of India, Thailand, Malaysia and Vietnam saw strong growth.